At a hearing before the Administrative Oversight and the Courts Subcommittee of the Senate Judiciary Committee, Sen. Chuck Grassley, R-Iowa, said he co-sponsored the bill because class actions are being abused to benefit lawyers through big fees at the expense of class members. Grassley cited class settlements in which members got coupons of little value while class counsel got "millions" in fees.

Grassley said the bill also responds to the increasing use of state courts for fast certification of class actions. He spoke of lawyers "gaming" the system to avoid removal to federal court. State attorneys general should be notified of proposed settlements, Grassley said, so they can object to unfair ones. Mandatory Rule 11 sanctions, he said, are needed to penalize frivolous class actions. Grassley said the bill would discourage exorbitant attorney fees by requiring them to be based on a reasonable percentage of actual damages paid to class members or hourly rates. He said the provision is similar to that used in securities litigation.

Federal courts, Grassley said, "consistently give closer scrutiny to class settlements and to whether it is fair for a case to proceed as a class action." He said federal courts are better equipped to deal with multistate issues, to consolidate related cases and to "prevent a race to settlement between competing cases."

Many class actions certified by state court "do not meet the basic, generally accepted class action requirements," said Stephen G. Morrison of Nelson, Mullins, Riley & Scarborough in Columbia, S.C., general counsel for Policy Management Systems Corp., chairman of Lawyers for Civil Justice and former president of the Defense Research Institute. He said state courts are less likely than federal courts to exercise rigorous case management to ensure due process. "Having discovered an open door in state courts, plaintiffs' counsel are filing class action lawsuits that they would never have seriously considered bringing a few years ago," he said.

Morrison said many class members are "forgotten participants" in class actions, not being asked if they want their claims asserted or litigated or how they want them settled.

Defendants in state class actions are being denied due process by not being able to object to certifications, Morrison said, referring to so-called "drive-by class certifications" cited in a previous hearing on a class action bill. Some class counsel, he said, take advantage of delayed service rules to get around the one-year federal removal deadline, or wait until the deadline has passed before amending complaints to include federal claims.

The U.S. Justice Department "strongly opposes" the bill on constitutional and policy grounds, Assistant U.S. Attorney General Eleanor Acheson told the subcommittee.

"We do not believe that the case has been made that there are abuses intrinsic in state court class actions that justify the wholesale removal of these cases from state courts," Acheson said.

She said concerns have been raised about class actions from both state and federal courts and said anecdotes about state cases "seem to reflect problems with individual judges or particular locales rather than systemic problems in states' handling of class actions. Unless the claimed abuses of class actions are peculiarly a state court or state law problem, federalization would not address the problems."

"We should await evidence of clear necessity before the federal government interferes with the authority of states to set their own law and procedures in their courts," Acheson said, "and that evidence should demonstrate that the states have broadly overreached or are unable to address the problems themselves."

The notification of attorneys general would be unnecessary and unduly burdensome to all parties, Acheson said.

The bill's 120-day waiting period before certifying a state or federal class, Acheson said, could be challenged as an impermissible challenge of state rights. In addition, she said the bill's provision for giving all 50 state attorney generals the names of state class members would preclude expedited settlements even when all parties agree to terms.

Acheson said it is not clear why class counsel would be subject to different fee rules than counsel in other cases. Why, she asked, would Title VII actions involving federal employees have different attorney fee rules than other Title VII claims? Court have recognized, she continued, that some civil rights cases seek equitable rather than monetary relief. Reasonable lodestar calculation of fees, she said, is often the beginning rather than the end of fee calculations in Title VII cases.

"Multipliers are available for particularly complicated cases or for experienced plaintiffs' counsel," Acheson said. "The interests of both plaintiffs, the courts and even defendants are best served by not discouraging experienced and knowledgeable counsel from taking on these cases."

Acheson said the bill's exceptions for removal are likely to apply to few cases because many defendants are corporations with diverse citizenship. Because of that, "the effect of this statute wold be to grant defendants the option of state or federal court in almost all state class actions." And since cases not certified by federal courts would be stripped of class allegations, "the bill would effectively federalize class action standards," she said. Even if the remanded cases are amended to include class claims, she said they could be removed again.

If state courts are "too ready to certify class actions," Acheson said those policy issues should be addressed by state courts and legislatures.

Brian Wolfman of Public Citizen Litigation Group said that while his group works to improve the class action process, Senate Bill 353 would not further that goal. The bill "is an unwise and ill-considered incursion by the federal government on the jurisdiction of the state courts. It works a radical transformation of judicial authority between the state and federal judiciaries that is not justified by any alleged 'crisis' in state court class action litigation," he said.

As a practical matter, Wolfman said the bill would end most state court involvement in class action. He said the bill's exceptions are meaningless, making it "little more than a 'Corporate Defendant Choice of Forum Act' since it allows the corporate defendants - not the plaintiffs - to select the court system it prefers.

"The bill is a resounding vote of 'no confidence' in our state courts," he said. "It is premised on a deep - and misplaced - distrust in state courts' ability to uphold the law."

Rather than promoting efficiency, Wolfman said the bill would create a roadblock by overburdening the federal judiciary at a time of many vacancies. (Mealey's Litigation Report: Asbestos; May 21, 1999)

AUSTRALIAN IMMIGRATION: Minister Angry at Queue Jumpers' Delays---------------------------------------------------------------From Canberra, AAP reports that Immigration Minister Philip Ruddock said money-hungry lawyers were abusing the immigration system by launching speculative class actions on behalf of people trying to gain Australian residency. Mr Ruddock has passed on information about the actions of one law firm to the Law Society for investigation.

"When you think about the amounts of money that have been involved in the class actions that have been brought there is in my view, quite inappropriate behavior on the part of the legal profession to see this as a growth area for legal practice," Mr Ruddock told ABC radio. Lawyers were misrepresenting the chances of success in such class actions, he said. "Quite clearly all of the matters which have been pursued before the courts to date have failed," he said. "I think they're highly speculative and the vulnerability of the people involved leads to them being pressed."

Mr Ruddock said the fact that queue jumpers could delay their departure from Australia by months or even years through such court processes showed that the system was flawed. "I think in relation to these matters the very appropriateness of class actions for remedies in this area is something the government is also going to have to look at," he said.

There was also evidence that Australians had been involved in the foiled attempt to illegally ship 2,000 Somalis to Australia, he said. "This is a situation in which you have a deliberate attempt to engage for profit," he said. "People were going to be charged $2,300 and 2,000 people paying that money gives a very large amount of money."

"They intended that all of them would come to Australia and there were Australian connections. I believe there was an Australian over there, involved in the putting together of the arrangements.

"And I understand from the information that we have received that that also included them obtaining legal advice in relation to the matter."

The government has legislation before parliament which seeks to restrict judicial appeal of refugee decisions. Labor and the Australian Democrats have said they will oppose the Judicial Review Bill in the Senate because among other reasons, they say it is unconstitutional. (AAP NEWSFEED; June 14, 1999)

HITSGALORE.COM: Pomerantz Haudek Files Complaint in California--------------------------------------------------------------Pomerantz Haudek Block Grossman & Gross LLP filed a class action lawsuit in United States District Court for the Central District of California, Western Division, against Hitsgalore.com, Inc. (OTC Bulletin Board: HITT) for securities fraud on behalf of all investors who acquired the Company's common stock during the period February 17, 1999 through May 27, 1999.

The Complaint alleges that Hitsgalore and certain of its officers and directors violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 as well as Rule 10b-5 promulgated thereunder by engaging in a scheme to defraud investors by disseminating false and misleading information about the Company's management and business condition. This false and misleading information served to artificially inflate the price of the Company's securities.

On May 11, 1999 it was disclosed that the Company's founder, Dorian Reed, along with two other individuals, had been ordered by a federal judge to pay $613,110 to 100 customers for "false claims made by Internet Business Broadcasting, a failed online advertising company they worked for." This disclosure caused the market price of Hitsgalore.com to plummet over 50 percent in a single day. Subsequently, the Company has announced that Dorian Reed served 10 months in a federal prison for wire fraud in 1992. In addition, it has been discovered that the Company's head of investor relations, Frank Pinizzito, also has a history of investor fraud. All told, the full disclosure of the Company's fraud has caused the stock to lose a staggering 75 percent from its pre-revelation price.

ISKCON: May Confront Additional Accusations of Child Abuse----------------------------------------------------------The Toronto Sun reports that things seemed a little tense at the Hare Krishna temple there. Word was just out that a big lawsuit was coming down the pike, a class-action lawsuit that would put ISKCON, the International Society for Krishna Consciousness, on the hotseat once again. This time for alleged sexual and physical abuse of children in their residential schools going back 20 years -- "and even today," says the Dallas lawyer preparing the case to be filed in the next couple of weeks.

Although the Toronto temple is unlikely to play much of a role in the case, fuses were short when reporter JEAN SONMOR tried to get information. Bhaktimarga, the spiritual leader who has run the temple for 26 years, was away, but Keshava, the spokesman, explained that they were ready for "these articles ... You better not make any mistakes," he told JEAN SONMOR. "We have our lawyers ready. I'll sue you."

It seemed a little extreme; the reporter was simply asking about the school they'd run in the temple. "We never had a school," he insisted. When the reporter persisted that they had not only had a school but in 1981 had visited it and written a story about it, he started talking wildly about lawsuits and counterstories.

Gradually through the 1990s, stories have begun to emerge about the humiliations and abuse some children suffered. Anonymously on Web sites like VOICE (Violations of ISKCON Children Exposed) or in very public fashion -- when 10 former students confronted the movement's leadership. According to a New York Times report, they complained of being caned, denied medical attention and sexually molested -- even raped at knifepoint.

The society commissioned a Middlebury College sociology professor, E. Burke Rochford Jr., to report on the allegations. The harshly critical report said it was impossible to quantify the abuse but that a "sizeable number" of the hundreds of children in the system had been abused, especially adolescent boys sent to India for schooling.

But in an age where many religions and institutions are struggling with how to react to similarly ugly stories, ISKCON has taken the bold step of publishing Rochford's report in its official journal.

"We're still shocked out of our minds that this went on," says Padya Vali, Vancouver-based communications director for ISKCON in Canada. She also ran a school in Seattle for 45 children and claims they never had a single case of abuse.

"We weren't looking for it," she says. "Our philosophy is simple living and high thinking ... We could be accused of naivete -- thinking we would escape this worldwide problem ... We didn't know that some pedophiles had come into our system disguised as members."

The naivete continues. Vali says she's not too worried about the lawsuit. "We're not turning a blind eye to the problem," she explains. They've responded to the complaints by putting in a number of checks and balances to codify their new "zero tolerance" policy. They've pledged to spend $ 250,000 a year for the next four years on their Child Protection Office, helping victims and charging perpetrators. When the courts look closely at how proactively they've gone after the problem, Vali believes they will have significantly mitigated their damages.

But it's hardly likely the victims will agree. After all, they sought out Dallas attorney Windle Turley, who won a $120-million lawsuit against the Catholic church recently. (The Toronto Sun; June 14, 1999)

ROYALTY-FREE PHOTOS: Models Unwilling to Share Memories-------------------------------------------------------Eight years after Keith Simon, Victoria Newell-Simon and their 10-month-old daughter McKenzie posed in a San Diego park for a family photograph, the image began showing up in the strangest, and most public, of places: In a handout touting Rogaine and the drug's hair-growing capabilities; In a San Diego Yellow Pages ad for marriage, drug and alcohol counseling; On a Christian Coalition calendar; and On a billboard in Bakersfield.

The Simons were appalled. It turned out their photo had been included -- without their permission -- on a CD-ROM of so-called "royalty-free" images used mainly for advertising. As a result, their family scene in the park, which was supposed to be a memento of McKenzie's childhood, had made its way into at least 10 percent of the households in the United States in uses that the Simons say were embarrassing and humiliating. The Simons were victims of what one company calls the royalty-free photo industry's "dirty little secret."

What happened to them, said attorney Paul J. Wright, "could happen to anyone." Wright represented Jaydee Locke, a part-time model whose pose with a tennis racket at the Olympic Resort Hotel & Spa in Carlsbad appeared without her permission on the same disk as the Simons' photo.

Over the last decade, digital technology has made photos cheap and available to almost anyone for almost any use. But the digital revolution that spawned royalty-free photos on CD- ROMs and the Internet also has spawned a wave of lawsuits, including at least three in San Diego County:

* Locke settled last year with PhotoDisc, a subsidiary of Getty Images Inc. based in Seattle, for $175,000. Her image had been used to sell a weight-loss formula, breast implants and a singles dating service, among other things.

* In an ongoing suit, San Diegan Karla Lyon alleges that Corel Corp. included on a CD-ROM a photograph of her high dive into a sparkling blue pool without her permission. The image ended up in a promotion for a health and fitness exposition.

* Three Modesto police officers joined Lyon in her class-action suit against Corel. They allege that the company did not get permission to use eight photos of them in SWAT uniforms. Some of the photos appeared in Guns Magazine and were used to promote military and police gear in a BlackHawk Industries catalog.

But it was PhotoDisc's settlement in November with the Simons -- for $1.5 million -- that sounded what some say was a wake-up call for the industry. "Something like that always raises everybody's attention and gets them quivering," said Rick Groman, president of one of the companies sued by the Simons.

Groman's Seattle company, West Stock, provided the Simons' image to PhotoDisc for use on the CD-ROM. West Stock and two other companies are still involved in what Groman calls a "rat's nest of litigation" resulting from the Simons' case.

In 1989, when one of the owners of Zephyr Pictures, a photography and stock photo firm in Solana Beach, snapped a photo of the Simons sitting on the grass outdoors, they say they had no inkling that the shot would someday be seen by millions of people. Neither the Simons, PhotoDisc nor Zephyr Pictures will talk publicly about the case. But the saga of the Simon family photo is told in county court records. The Simons got their portrait taken as payment from Zephyr for a one-time modeling job Victoria Newell-Simon had done as a favor for a friend. In 1995, the Simons moved from La Mesa to Albuquerque.

Two years later, a friend from Brawley called. She was one of 2.5 million people who had received a Rogaine ad distributed by Costco warehouse stores that used the Simons' picture. Friends began reporting sightings of the family's photograph all over the country, from a billboard for Good Samaritan Hospital in Bakersfield to a promotion for The San Diego Union-Tribune's Possibilities personal ads. NurseWeek magazine used the picture to illustrate a story about critically ill children. Macy's department store used it in a magazine to sell picture frames. One of Keith Simon's co-workers at his landscape architecture firm recognized the Simons as the "June family" on a Christian Coalition calendar hanging in a beauty salon.

Keith Simon went to his mailbox one day, only to see his family being used to plug Quicken Family Lawyer software. His household was among the 9 million that received that ad, according to court records. "Unpleasant" and "horrible" is how the Simons describe the ways their photo was used. Victoria Newell-Simon said she was appalled to be associated with the Christian Coalition, whose political beliefs she disagrees with. Keith Simon was upset about the Rogaine ad. "Friends of mine that saw this ad probably think I used Rogaine to `hide' my hair loss," he said in court documents.

The Simon case provides a glimpse into the emerging digital photo industry. As the Simons learned, Zephyr Pictures in Solana Beach had provided the family's photo to West Stock, which in turn provided it to PhotoDisc. By the Simons' estimate, PhotoDisc was taking in $50,000 a month from sales of the CD-ROM that contained their image. Zephyr and West Stock were getting a share of that.

The Simons accused all three companies of fraud and negligence.

In the photography business, people pictured in a photo used for commercial purposes are supposed to sign a model release authorizing that use. Henry Scanlon, chairman of Comstock, a New York stock-photo firm that was not involved in the Simon case, said he is a stickler about releases. He said he has long given this advice to photographers who sell someone's photo for commercial use without permission: "Wear athletic socks when you go to court. That way, when the judge holds you by your ankles to shake out every last dime, your ankles won't get chafed."

But the royalty-free photo industry's "dirty little secret," according to Comstock, is that some companies that obtain photos aren't careful about getting permission for using them. "They know that if there is a problem with the model release -- they, the agency -- are not going to be first in line at the judge's bench. You are," Comstock warns users of such photos on its Web site.

In the Simons' case, a model release was attached to their photo, but their lawsuit describes it as an obvious forgery. It bore someone else's name, and the words "and family" had been added in a second handwriting. According to the lawsuit, PhotoDisc never bothered to check the validity of the model release before putting the family's photo on the CD-ROM. Zephyr owner Melanie Carr, who took the Simons' photo, is quoted in court papers as saying it was "an accident" that their picture ended up in a file of stock photos sold for advertising purposes. But according to court records, the Simons' photo wasn't the only one Zephyr provided for the PhotoDisc CD-ROM that didn't have a valid model release.

"Apparently, things were a real nightmare in Seattle, and there were a lot of bad images," Robert Ottilie, the Simon's attorney, said in court papers. In fact, he said, the problem became so bad that PhotoDisc and West Stock entered into an agreement to verify all of the model releases for thousands of photos on 33 CD-ROMs. Of the 408 photos on the "People and Lifestyles," volume 2, CD- ROM, PhotoDisc removed 11 when the disk was remastered. Photos of the Simon family and Jaydee Locke were among them. The others included a photo, taken by Zephyr, of an unidentified couple in Yosemite.

Stopping distribution of a photo is one thing. Stopping its use is another. PhotoDisc sold 12,633 CD-ROMs containing the Simons' photo. Not all of the purchasers of the disk could be identified, much less the uses. Eleven users of the photo, including the Union-Tribune, were dragged into the lawsuit as defendants along with the photo companies. When more users were discovered, the Simons filed a second suit naming them. "This could go on forever," the Simons' attorney wrote in court papers. "The Simons will be finding end users as long as they are alive."

The end users portrayed themselves as victims. They said they relied on PhotoDisc's guarantee that the images could be used for almost anything that wasn't pornographic or defamatory. "The word `innocent' gets thrown around in lawsuits, but here it's really true," said Costco attorney Patrick Callans. PhotoDisc's $1.5 million payment to the Simons got the end users off the hook. PhotoDisc also appeased the Simons, who now live in Denver, by agreeing to spend $400,000 to tackle the nearly impossible task of getting their photo off the market.

The company sent letters to its customers offering to replace the CD-ROM. PhotoDisc even published an ad in USA Today apologizing to the Simons and acknowledging that their photo did not have a valid model release. "PhotoDisc was very aggressive in resolving the problem for the Simons and in taking every conceivable step to make sure their image would never be utilized in the future," said Ottilie, the Simon's attorney.

But PhotoDisc's legal wrangling in San Diego Superior Court continues as it tries to recoup some of the money it paid to the Simons from West Stock, Zephyr and their insurance companies. The settlement provided a harsh lesson for the digital photo industry. "The chickens have come home to roost," said Les Riess, president of the American Society of Media Photographers. He condemns the royalty-free photo business as "morally and ethically bankrupt."

But Groman, West Stock's president, defends the industry, pointing out that although millions of royalty-free photos are in circulation, cases such as the Simons' occur "on a percentage basis that's tiny, tiny, tiny." Nonetheless, the Simons' case prompted changes, Groman said. "People that were not being careful are now being careful about obtaining the proper release forms from models in photographs," he said. "People who were being careful have redoubled their efforts." (San Diego Union And Tribune; 06/13/99)

SELECT COMFORT: Berman DeValerio Files Complaint in Minnesota-------------------------------------------------------------Berman, DeValerio & Pease LLP, filed a class action lawsuit against Select Comfort Corp. (Nasdaq: AIRB) in the United States District Court for the District of Minnesota on June 11, 1999. The lawsuit, which seeks class action status, is brought for violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of all persons who purchased the common stock of Select Comfort, Corp. during the period January 25, 1999 through June 7, 1999.

"The action charges that Select Comfort concealed from investors that its sole source of consumer financing put in place much stricter credit standards which had, and would continue to, significantly curtail Select Comfort's revenues and earnings" said Jeffrey C. Block, one of the partners at Berman, DeValerio & Pease. According to the lawsuit, more than 50% of Select Comfort's revenues are derived from consumer credit transactions with this one source of consumer financing and the added credit restrictions would severely cut revenues and earnings. Select Comfort's common stock price plummeted 43% in reaction to the disclosure of its poor 1999 second quarter results due, in part, to the new tightened credit restrictions, falling from $13 1/8 per share to $7 17/16 per share after the information was fully disclosed to the market.

SILICON VALLEY: It's "Fat City" for Unpaid Overtime Claims----------------------------------------------------------For nearly 15 years, Jane was a model employee at a large publicly held technology company in Silicon Valley. She got to the office on time, worked diligently on every project she was assigned and put in time off the clock to read training manuals. Her company rewarded her efforts. Jane, who asked not to be identified because she fears reprisals from her former employer, received six promotions during her tenure and 10 percent pay raises each year. Then, in 1989, she was moved into an administrative position of such weighty responsibility that the company claimed she was now exempt from overtime pay.

Among her duties: picking up customers at the airport, arranging for hotel accommodations, scheduling technicians for training classes and dropping off packages to Federal Express. Jane, who suspected her job didn't meet California's legal requirements for an exempt employee, kept track of the extra hours she worked for no pay, on average 18 to 25 hours a week. "When you are giving your best effort and feel that you are not being treated fairly, you have to educate yourself," Jane said.

In 1997, after leaving her job, Jane enlisted the help of the state labor commissioner to collect back overtime wages from her employer. A three-year statute of limitations prevented Jane from collecting all that she believed she was owed. And Jane didn't want a protracted court battle. So she settled with her former employer for $25,000, half of the overtime pay to which the state Labor Commissioner believed she was entitled. "I was not the first overtime case this company lost, and I certainly won't be the last," Jane said.

Jane's case sheds light on a little-known but disturbing trend in the high-tech industry -- one that state labor officials are mounting a campaign to stamp out. Miles Locker, the chief legal counsel to the state labor commissioner, said the number of wage-and-hour claims involving high-tech companies in the San Jose office of the state Division of Labor Standards Enforcement shot up during the recession in the early 1990s and has averaged about 20 percent a year ever since.

The Labor Standards Enforcement Division has case files filled with stories of companies that don't pay their workers overtime, sales commissions and benefits. Some companies don't pay their workers at all, instead granting them stock options that become worthless when the firms go out of business. What is so alarming is that these are the types of claims more commonly filed by farm or garment workers, Locker said. In the industry, high-tech companies are known in a half-joking way as white-collar sweatshops. But the unsettling truth is that companies can -- and do -- save hundreds of thousands of dollars in unpaid wages.

Many industry lawyers, executives and workers believe the problem is that labor laws don't reflect the working reality of Silicon Valley, a modern-day Gold Rush that capitalizes on the American enthusiasm for risk and speculation -- the same kind of enthusiasm that gave birth to nearly every industry in the nation's history.

Whether they are joining an Internet start-up or a more mature, public company, high-tech workers say they like the social contract they have established with their employers. They may slave at an inhuman pace and sacrifice their personal lives, but they have the opportunity to make a lot of money, are showered with perks and may just be the lucky winners of the stock-options sweepstakes.

But the threat of a government crackdown has executives and lawyers reaching for their bottle of antacid. That's because the threat holds more water than it would have just five months ago.

After years of anti-labor sentiment, department cutbacks and staffing shortages, the state has a more labor-friendly political administration and a new labor commissioner, Marcy Saunders, a former flight attendant and house painter who rose to head the San Mateo Building Trades Council. In Sacramento, labor unions are no longer political outcasts and are making inroads in the Legislature to reshape laws that affect working people.

"Employers in the past felt like they could skate," Locker said. "Those days are over. Every industry in California is expected to play by the same rules. There will be no special treatment for the technology industry." Beefing up enforcement

To that end, the Labor Standards Enforcement Division plans to beef up its enforcement ranks. In the new state budget, Locker hopes to get approval to hire four more attorneys for a total of 23 statewide. He also hopes the division will add more investigators. The state has 140, only 22 of whom work out of the Bay Area.

Employment lawyers say Locker isn't the only one taking a harder look at the industry's lax compliance with labor laws. A growing number of class-action plaintiffs lawyers are ready to pounce.

"They see Silicon Valley as fat city for these kinds of claims," said one employment lawyer.

Locker views these lawyers quite differently -- as an extended arm of his division to help enforce wage-and-hour laws. "The reality is that there are more private attorneys out there than there are of us," Locker said. "We are very dependent on the private bar pulling its weight to enforce the law, too. It's a joint effort."

Those are ominous words to lawyers who represent start-ups and mature companies. They fear it's only a matter of time before their clients awaken "a sleeping giant."

With good reason. Failure to pay overtime is one of the leading causes of labor claims against employers, said Ethan A. Winning of E.A. Winning Associates, a Walnut Creek-based employee relations consulting firm. He should know. For 22 years, he has helped local companies tackle employment problems.

Today, about 50 percent of his practice involves the high-tech industry. "I'm an employer advocate, but too many of these high-tech companies are taking advantage of their employees and loopholes in the system," Winning said.

Unlawful employment practices are even more common in start-ups. Russ Elmer, an employment attorney with Gray Cary Ware & Freidenrich, says the statistics from his Palo Alto practice are far more sobering than government figures: Ninety percent of companies that have 10 or fewer employees and that seek out his advice are engaged in at least one illegal practice. And those are the ones who are smart enough to hire an employment lawyer.

"A lot of start-ups have very inexperienced management, which leads to all kinds of different problems, inconsistent policies and illegal practices," Elmer said.

This is one area where entrepreneurs cannot afford to take risks, Winning said. "I don't care if you're the next Einstein, if you're running a business, you had better know the labor code," he said.

The Fair Labor Standards Act, a federal law passed in 1938 to encourage hiring during the Great Depression and guard against exploitation of adult and child laborers, regulates overtime. California also has its own regulations: 15 Industrial Welfare Commission wage orders. Every company is covered by a wage order.

In California, non-exempt workers must be paid overtime if they work more than 40 hours a week. Exempt employees can be asked to work as many hours as needed without overtime pay. Someone can have a grandiose-sounding title but it's the substance of that person's job duties that makes the difference.

Under state and federal law, exempt workers fall into three categories: executives, administrative employees and professionals. All three must meet one of the following classifications: The employee performs work that is primarily intellectual, managerial or creative that also requires him or her to exercise discretion and independent judgment, and he or she is paid a salary of at least $1,150 a month; The employee is licensed or certified by the state and belongs to one of the following professions: law, medicine, dentistry, pharmacy, optometry, architecture, engineering, teaching or accounting, or has a job in a learned or artistic profession.

While many companies have trouble classifying workers, when it comes to computer professionals, "that difficulty seems to be compounded," Winning said.

Lobbied by computer industry trade groups, the U.S. Department of Labor in 1992 came out with new rules for non-union, highly skilled tech professionals who earn more than $27.63 an hour as computer systems analysts, programmers, software engineers, software developers and others who have a "high degree of theoretical knowledge." It marked the first time in the 61-year history of the federal wage-and-hour law that anyone has become exempt by the amount of money earned.

But that doesn't mean that a computer programmer who writes the same lines of code day in day out or the troubleshooter who only fixes computers are exempt workers, Winning said. "They sound like very difficult, esoteric jobs but within the industry, they are not," he said.

George Friday, the regional administrator for the wage-and-hour division of the U.S. Department of Labor, said the perpetual-motion creation of new types of jobs also muddies the exempt issue. "In the high-tech industry, sometimes the line between exempt and non-exempt just gets blurred," he said. Red flags

That blurring is sometimes market-driven. Competing in an industry that requires companies to adapt to rapid-fire change, sometimes on thin margins, high-tech companies, especially start-ups, often try to cut labor costs any way they can.

Some hire permanent temporary workers or categorize nearly everyone as a consultant, contractor or independent contractor. That usually means they don't have to pay payroll taxes, overtime premiums or health insurance, and they have no liability for discrimination, harassment or workers compensation.

But if a worker should have been classified differently, the employer can be liable for all of that and more, including penalties for failure to provide workers' compensation coverage and exposure to personal injury lawsuits if an employee is hurt on the job.

Companies also could be subjected to an audit to determine how much they owe all of their employees during that time for unpaid overtime. Worse yet, the legal fees for defending an unpaid wages claim can go through the roof and into the stratosphere.

The potential for legal snarls is not going unnoticed. "Big and small companies are very worried about this," said an employment lawyer who represents a who's who of high-tech companies.

That's because these companies have spotted some red flags. The much ballyhooed Silicon Valley work culture recently has come under fire for the same types of problems more commonly found in old-line corporate America.

For example, the U.S. Department of Labor is scrutinizing the employment practices of high-tech companies when it comes to racial discrimination, lack of diversity and immigration issues, department officials say.

Another rude awakening came last month in the form of a San Francisco federal appeals court ruling that may forever change the high-tech industry's growing use of temporary workers. Thousands of "permatemp" workers Microsoft Corp. has employed through staffing agencies since 1986 are entitled to stock options, the court decided.

The ruling highlights the industry's attempt to evade laws designed to protect employees so they can avoid the costs of paying benefits to workers, said Mark Thierman, a San Francisco lawyer who represents a group of 360 temporary employees who are suing Pacific Bell for back benefits.

Overtime, he says, is just the next employment frontier. And the worst may be yet to come.

Industry observers say if the booming economy and the technology sector weaken, widespread industry layoffs could trigger a rash of employee claims for unpaid wages. "When the sales go away," said one East Bay high-tech company executive ruefully, "the knives come out."

Whether they are acting out of ignorance or opportunism, Locker warns he has no sympathy for high-tech companies who underpay their workers.

"We're talking minimum labor standards here. These are basic standards that cover workers throughout the state," Locker said. "When you're out there and enforcing the law against what I think of as the most marginal kinds of employers such as small garment manufacturers and then you face someone with a Ph.D. in engineering and all kinds of financial backing from various investors, the excuses don't ring true."

What really gets Locker fired up is that some of those his division sees are lower-level, less "sophisticated" workers who are at the opposite end of the socioeconomic spectrum from the high-paid, BMW-driving set who knowingly take risks in Silicon Valley in hopes of striking it rich.

"The workers who make millions of dollars in stock options are not coming into our offices," Locker said. "We see workers who performed their part of the bargain, who went to work faithfully and tried to make their company profitable, but for whatever reason, the company didn't take off. These workers should not be ensuring their employers' business success. Companies need to find investors, not employees, to back their businesses." Silicon Valley lottery

Yet, it's the money, the excitement and the possibility of getting in on the ground floor of an eBay or a Yahoo! that energizes many -- if not most -- high-tech workers. The penny shares they acquire in the early days of the company are the industry's coin of the realm.

That they may end up working for a PointCast or a SyQuest does not deter them. There's always the next start-up on the horizon or plenty of other jobs to be had in the industry. If Netscape co-founder Jim Clark's secretary can make a million bucks, why can't they?

Besides, the perks are good. High-tech companies tend to have democratic, casual workplaces where you're more likely to find a fun-and-games room than an executive washroom. For their hard work, employees cash in on quarterly bonuses and weekends in the wine country. High-tech companies also offer all kinds of incentives on a daily basis -- on-site dry cleaning, take-home meals, fitness programs -- to ramp up productivity and keep employees at work.

As a result, the office becomes a second home -- or even the main home -- for employees, and their co-workers become their family and friends.

An East Bay software engineer, who asked that his name not be used or his company identified, said with few exceptions all employees are classified as exempt workers -- from the customer-service workers to low-level technical staff. These workers often put in long hours when the company is preparing to launch a product but are not paid overtime.

"Working these hours is never mandated," the software engineer said. "But there are things that need to be done so people volunteer to do them." Old laws, new workplace

High-tech workers get their ticket to the Silicon Valley lottery, companies get a turbo-charged work force. What could be wrong with that?

Besides, high-tech companies are not the only wage-and-hour offenders -- not by a long shot. Companies in every industry inadvertently misclassify workers -- and have for years. An alert from the California Chamber of Commerce reports: "Many California employers are unaware of the existence of exempt and non-exempt employees."

Industry lawyers ask whether what they believe are antediluvian labor laws should even apply to such a new and dynamic industry. The Fair Labors Standards Act does not reflect the new work culture evolving in Silicon Valley and high-tech hubs across the country, they say. Nowadays, laws designed to protect blue-collar line workers encumber well-paid, white-collar employees. This is a new generation of workers who want to take on -- not run from -- risk.

"I'm not saying workers don't need protection, not at all," said Fred Alvarez, a prominent Silicon Valley employment lawyer who from 1987 to 1989 served as U.S. assistant secretary of labor, directing the Wage and Hour Division. "But wage-and-hour laws are for people who work in a different world, on the plant floor, punching the clock, working the swing or graveyard shift. (In the high-tech industry), everyone works hard to build a company and take it public so they can get stock options and don't have work anymore. You just can't change the world to make it look like the Wage and Hour Standards Act."

Michael Lotito, vice chairman of the Society for Human Resources Management and a San Francisco employment lawyer who is defending a high-tech company against an unpaid wages claim, laments the government's efforts to make old laws fit the new workplace.

"In the past when there were problems, employees used to get together to form a union," Lotito said. "Now they go to the government and consult the 'how to sue the company for free' bulletin board." (Contra Costa Newspapers; June 13, 1999)

SPRINT: Settlement Prompts Free Network Upgrade for Customers-------------------------------------------------------------When Sprint first announced earlier this month that it will begin upgrading its Sprint Spectrum customers in the Washington-Baltimore area to its PCS network free of charge, it did not mention the main impetus for this move -- a class-action lawsuit settlement. The Washington Post reports that in a letter that Spectrum customers began receiving last week, Sprint disclosed a court notice, notifying the customers of a class-action suit against the company over deceptive advertising and misrepresentation of services.

This settlement, pending final approval by the Baltimore Circuit Court, requires Sprint to convert all 100,000 of its Spectrum customers to its PCS network, replacing their current phones and accessories at no cost. Sprint officials stress that the switch from Spectrum to the PCS network is an initiative to provide better service to its Spectrum customers, but Sprint spokesman Larry McDonnell said, taking advantage of a double-negative, "I'm not going to say that the lawsuit is not related" to the company's decision to convert customers free of charge.

Filed in July 1997, the suit asserted that Sprint falsely advertised the Spectrum features when it initially marketed its Spectrum network in November 1995, according to Baltimore-based class counsel Charles Piven. As a result, the suit alleged Sprint misled customers to believe that they would be able to use these phones nationwide as well as globally.

While Sprint Spectrum offers international roaming and some nationwide roaming services nationwide, most domestic cities are out of Spectrum range. The lawsuit claimed that the company misrepresented the capabilities of this system.

Sprint Spectrum was one of the nation's first all-digital "personal communications services" and has been successful since its introduction in this market four years ago. Spectrum uses a technology known as Global System for Mobile Communications (GSM), which is widely used in Europe and around the world.

The lawsuit alleged that Sprint "never intended to develop a GSM service to cover the United States," Piven said. Sprint's intention, the suit further claimed, was to eventually phase out Spectrum once the PCS network was up and running.

Sprint officials still deny these charges of deception and misrepresentation in marketing and development strategies, presenting the conversion to the PCS network as an upgrade for Spectrum customers. "We needed to make sure that we can position our customers with an upgrade. It is at that point in time that we decided that PCS was the right product for all our customers," Sprint Regional Vice President Brian McIntee said.

But the company has been backing away from heavy promotion of the Spectrum service since March 1998. The marketing of Sprint Spectrum phones had been sharply curtailed since Sprint introduced the PCS network to the Washington-Baltimore area 15 months ago.

A similar class-action suit, filed in the District of Columbia federal district court last May, has been postponed until this settlement's final approval is decided in a fairness hearing in early August.

According to McIntee, Sprint's move to phase out Spectrum in favor of the PCS network is largely due to costs. "It's not easy to operate two digital networks in one market," he said. The Washington and Baltimore areas are the last Sprint markets in the country that have not been moved entirely to the PCS network. The transition from Spectrum to PCS will take six months, McIntee estimated, after which Spectrum will no longer be in operation. While McIntee would not say how much it would cost Sprint to phase out the Spectrum system, he described it as a "sizable investment, but well worth it."

PCS provides a rate plan that would bundle all local and long distance calling charges into one flat rate. The caller only pays for the minutes without accruing long-distance charges or interconnection fees, the fee wireless owners pay for receiving phone calls in the Spectrum system.

Sprint must convert Spectrum customers to the PCS network. (The Washington Post; June 14, 1999)

The Supreme Court's unanimous denial of William Barnes' petition for a writ of certiorari came on May 17. Barnes appealed the Third Circuit U.S. Court of Appeals' Nov. 12 opinion affirming summary judgment. The full Third Circuit denied Barnes' request for an en banc hearing on Dec. 16.

Judge Clarence Newcomer of the Eastern District of Pennsylvania initially certified the Barnes class of smokers, but he reversed that order on Oct. 17, 1997, concluding that individual issues precluded continuing the case as a class action.

He then dismissed five of the plaintiffs on statute of limitations grounds and a sixth on failure to link smoking to her request for tests not specifically directed at smokers, and granted summary judgment to the defendants.

The Third Circuit panel agreed with Judge Newcomer "that addiction, causation, the defenses of comparative and contributory negligence, the need for medical monitoring and the statute of limitations present too many individual issues to permit certification."

The panel rejected Barnes' argument that nicotine addiction was not a prerequisite to class membership or a barrier to class certification. Addiction, the panel found, is an essential component of each plaintiff's claim because plaintiffs must show "that defendants caused their exposure to tobacco."

The panel also concluded that each plaintiff's need for monitoring, and how that program would differ from a monitoring program for the general public, argues against class certification.

Among its rulings, the panel also affirmed that defendants could raise defenses of contributory negligence, assumption of risk and consent to exposure, all of which would require inquiry into individual smoking histories.

VICTORIAN ORPHANAGES: Wards Down Under Charge Violence and Abuse----------------------------------------------------------------From Melbourne, Australia, AAP reports that orphans abused in the 50s and 60s and left with broken bones, perforated eardrums and bruises have launched a Court action against orphanages and the Victorian government. Melbourne lawyer Vivienne Waller, acting for the wards of state, said she had found evidence of physical and sexual abuse among 200 histories of children who lived in certain Victorian orphanages between 1955 and 1965.

She said at one orphanage it was alleged there were two or three pedophiles on the staff.

Ms Waller said the court action sought compensation from particular orphanages and the Victorian government. "Firstly, there's sustained and repeated physical violence," Ms Waller said. "Some children's homes provided excellent care but others were operating in a culture of violence and abuse. I have reports of children being punched in the face or head, knocked to the ground, being kicked, being pushed down stairs, being swiped with a coathanger."

"I have reports of children suffering broken bones, perforated eardrums, bruising and other physical injuries," Ms Waller told ABC radio. She said there also was a range of allegations of sexual abuse. "Certainly, having taken so many histories it becomes clear that particular orphanages were worse than others," she said. She had collected a large number of allegations from one particular orphanage, where it appeared that there were two or three pedophiles on the staff.

Ms Waller said it was common for emotional problems caused by such treatment to manifest themselves later in life possibly when some event triggered memories or when the victims had children of their own. She said many developed emotional and psychological problems, with common symptoms including panic attacks, depression, insomnia and nightmares.

Yesterday, the State Opposition released details of a Children's Welfare Association report to the state government in which two-thirds of the welfare agencies working with neglected children in Victoria claimed their charges were becoming more damaged while under state care.

According to 76 per cent of the agencies, there had been an increase in the number of suicide attempts, mental health problems, as well as violent and aggressive behavior, verbal and physical abuse of staff, drug and alcohol abuse, and sexual misbehavior towards younger wards over the past two years.

State Opposition community services spokeswoman Christine Campbell said the children were currently housed in agency-run community residential care units, which had replaced state-run units after they were closed down.

"We have a funneling effect where the most damaged children are all being concentrated together in less houses and being managed by welfare agencies, not the Department of Human Services."

She said the welfare agencies were not getting full funding from the government and had to raise money themselves. "The staff in these agencies experience levels of abuse and threat that are clearly unacceptable," Ms Campbell said. (AAP NEWSFEED; June 14, 1999)

In July 1998, Windmere-Durable Holdings Inc., a manufacturer and distributor of various products and appliances, issued stock in two public offerings in connection with its acquisition of the Household Products Group of Black & Decker Inc. Shortly thereafter, the company announced that anticipated sales volume and earnings per share would be $30 million to $40 million less than previous estimates. Windmere s tock promptly plummeted in price and this proposed securities class action complaint was filed on Sept. 29, 1998.

Numerous other putative class action complaints were later filed in New York and Florida, all alleging similar claims of misrepresentation and failure to disclose material information.

After consolidating the cases and provisionally certifying the class, Judge Lenard selected Sherleigh Associates LLC and Sherleigh Associates Inc. Profit Sharing Plan, which owned 22,000 shares of Windmere stock during the class period, as lead plaintiff. Under the Private Securities Litigation Reform Act of 1995 (PSLRA), the court is to "presume the largest stakeholder is best able to represent the class," she explained.

Judge Lenard provisionally certified Sherleigh as lead plaintiff, giving the other parties 20 days to rebut the presumption.

Turning to the competing claims for designation as lead counsel, Judge Lenard asked "What deference should be paid to the class representative's choice of counsel, as balanced against the court's obligation to the class to ensure such representation is of high quality and is provided at a fair price?" Her answer: a sealed-bid auction.

"Forging into this little-traveled ground requires some caution," she added, setting forth several minimum requirements. First, she rejected a proposal by the contending law firms to form a "steering committee" and ruled that she would not accept any "joint proposals." Second, she found that "a contingency fee arrangement best aligns interests of the class and the attorneys."

Third, she outlined specific criteria for bid submissions. To be considered in the auction, each bid, to be filed ex parte and under seal, shall provide:

-- a statement of the firm's experience and bona fide qualifications, including its willingness to post a completion bond;

-- the firm's malpractice insurance coverage;

-- evidence that the firm has fully evaluated the probability of success in the case;

-- a description of the firm's contingency fee arrangement and how it will account for costs and expenses;

-- "a defense of the bid that describes how the fees and costs charges will motivate the firm to adequately represent the class"; and

-- a certification that the bid was prepared independently and without disclosure or consultation with any other contending law firm. (International Reinsurance Dispute Reporter; May 28, 1999)

WYETH-AYERST: Confidential Settlement Reached in California-----------------------------------------------------------Parties to a class action filed a year ago in California have agreed to settle the case for an undisclosed amount, sources told Mealey Publications (Paul E. McGloin, et al. v. Wyeth-Ayerst Laboratories Inc., No. 98-2596, N.D. Calif.). The settlement, which sources would only say is "very reasonable," was reached in early April.

Paul McGloin filed the class complaint in June 1998, shortly after Duract brand bromfenac sodium was withdrawn from the market.

McGloin and several others alleged that Duract maker Wyeth-Ayerst Laboratories Inc. failed to warn doctors and patients that Duract could be toxic to the liver if used for more than 10 days. They had noted that Wyeth added such warnings to Duract labels before withdrawing the drug altogether.

The McGloin plaintiffs had asked that Wyeth-Ayerst be ordered to fund a nationwide medical monitoring program under which patients would get liver enzyme tests to check for possible liver damage. They asked that the court require updated patient warnings and emergency class notification, in addition to funding for studies on the long-term effect of Duract and possible cures for detrimental effects.

McGloin was represented by Donald S. Edgar of the Law Offices of Donald S. Edgar in Santa Rosa, Calif. Stuart M. Gordon and James R. Reilly of Gordon & Rees in San Francisco represented Wyeth. (Mealey's Emerging Drugs & Devices; May 21, 1999)

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